Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
Government employee salaries + benefits + pensions = bubble.
Government schools K-12 = bubble.
Higher education = bubble.
MSM monopoly = bubble.
The foundations of the opposition are crumbling before our eyes.
We are on the verge of a table-clearing, systemic regime collapse.
Once in a century change is coming.
Be happy.
Sept. 30, 2010: IASB proposes Severe Hyperinflation amendment to IFRS 1. “The amendment proposes guidance on how an entity should resume presenting financial statements in accordance with International Financial Reporting Standards (IFRSs) after a period when the entity was unable to comply with IFRSs because its functional currency was subject to severe hyperinflation.” This is good information, and I expect to study it closely.
I’m exaggerating to make a point here. Hyperinflation is unlikely in the US and EU. Inflation, long term, is nearly certain. Why? Because government debt is denominated in inflatable currency. The debtor has the means to determine the real value of the debt. Inflation would also permit the return of “bracket creep.” This prospect is delightful to the political class, as it passively increases taxes through wage inflation, while permitting nominal “tax cuts” through rate/bracket adjustments that can be artfully timed to coincide with the electoral cycle.
If you’re looking for the Bernanke Helicopter as a sign of coming inflation, you may already be too late. The Bernanke Submarine has already delivered its cargo and returned safely to base. The Federal Reserve’s politically invisible policy of paying interest on excess bank reserves has already created a monetary overhang of $1 trillion. So far, the expanded money supply has amounted to a subsidy for banks, as they can get the equivalent of the overnight Fed funds rate on all their reserves, not just the statutory requirement. The government has essentially printed new money, then borrowed it back in order to buy government and agency debt (quantitative easing).
This strategy, which has worked in the past in Japan as a countermeasure to deflation, creates its own risks. First, it has a tendency to reduce whatever stimulating effect other measures might have by soaking up money and taking it out of circulation. Why should banks lend money to businesses and consumers when they can safely lend to the Fed? Second, it can be difficult to exit. At 0.25%, the Fed is up against the limit of zero interest rates, so the effectiveness of quantitative easing as an anti-deflation device is near its limit. But even if it stops being effective for the purpose, the Fed has a wolf by the ears, and can neither hang on indefinitely nor let go safely. To unwind the position, it would have to sell government and agency debt in the open market. Done abruptly, it would effectively raise interest rates by depressing the price of government debt, immediately inflating the currency. It would have the same effect as an overt currency devaluation, and carries a risk of hyperinflation. Done gradually, it has the risk of continuing to lock up money in the banking reserves and restricting growth. Done clumsily, welcome back stagflation.
The only good exit from this bind is a growing economy. A small amount of inflation is always a by-product of vigorous GDP growth. To the extent that other government policies discourage GDP growth, the Fed’s strategy could make matters worse.
Any system susceptible to a Black Swan will eventually blow up.
–Nassim Taleb [Link is a pdf.]
It will be about the American way of life, where it came from, where it’s going and what we should be doing. So far it looks like we will have everything in there: The Magna Carta, the Singularity, Resilient Communities, the Haymarket Riot, the Anglosphere, the Constitution, Libertarians and Conservatives having a group hug, the inevitable doom of our would-be overlords, pretty much everything including the kitchen sink. We are still working on the book proposal. But we are moving along.
So far the awesomeness is only nascent, but the grandeur of the vision is beginning to grip me.
I will be posting on the blog, shamelessly seeking assistance from our staggeringly brilliant readers, as we get into the research and writing. The CBz hive-mind is a juggernaut which nothing can withstand for long.
I plan to pick your brains, dear friends.
You have been warned!
Dr. Paul Craig Roberts, the famous Reagan administration economist and now an embittered and cranky paleoconservative social critic, penned a short but intriguing American “collapse” scenario set in the near future. Some of what Roberts writes fits neatly with the thesis in Joseph Tainter’s The Collapse of Complex Societies
….As society broke down, the police became warlords. The state police broke apart, and the officers were subsumed into the local forces of their communities. The newly formed tribes expanded to encompass the relatives and friends of the police.
The dollar had collapsed as world reserve currency in 2012 when the worsening economic depression made it clear to Washington’s creditors that the federal budget deficit was too large to be financed except by the printing of money. With the dollar’s demise, import prices skyrocketed. As Americans were unable to afford foreign-made goods, the transnational corporations that were producing offshore for US markets were bankrupted, further eroding the government’s revenue base.